My piece in latest Frontline, on why #Covid 's economic crisis is unlike a usual recession, why a “stimulus” alone just won’t do. For the sake of the economy we need to protect lives, livelihoods, incomes and productive capacity during #lockdown and after frontline.thehindu.com/cover-story/ar…
I propose that there are broadly 4 sets of impacts. First, the public health consequences. Fiscal constraints MUST NOT be allowed to stand in the way of attending to this emergency. The NaMo Govt has done precious little even after it woke to the challenge very late
The 2nd is the impact on a range of sections most vulnerable to the lockdown - migrant workers, informal sector workers, agri workers, small and marginal peasants, etc. It is NOT enough to provide cash alone. Urgent need to PHYSICALLY move essentials during #lockdown.
Third, the #lockdown has resulted in the TOTAL evaporation of national output, which can never be recovered. This has consequences for ALL sections of the economy. But this MUST NOT be allowed to blow into a full blown collapse of productive capacity.
There is need for across-the-board support. Every sector and every section requires protection. This requires policy to ensure that the liquidity problem arising from the sudden collapse of demand must not be allowed to snowball into an insolvency problem.
If this isn’t done, the Indian economy could suffer from second order impacts arising from the collapse of productive capacity, that would further propel national output further downwards, with dangerous consequences for livelihoods.
Labour needs to be protected not just because social justice demands it, but because otherwise, we could be heading towards a major dislocation of labour supply if and when the economy is in a better place. The middle class notion that human labour is homogenous is just humbug.
And, this support can’t be confined to those who are hurt by the first round of impact. Nor can it be confined to labour-intensive sectors. Critical capital-intensive sectors like power, petroleum, mining, railways also need protection so that they can fire when things improve.
A third-order effect could arise from the collapse of demand even after #lockdown is lifted, unless massive spending programme is initiated to keep demand afloat. This is when a regular stimulus may work. Salary cuts may appear rational for a firm, but cataclysmic systemically.
But do we have the means to provide this scale of support? I suggest one method, using the vast GSTN database that allows the Govt some visibility into how much support may be required for different sectors. Some normative standards may be used to determine support levels.
Since this database also has details of bank accounts, it can be used to make DIRECT transfers, instead of depending on the regular banking channels The level of turnover, for instance, may be one yardstick, but there could be others, to decide on the extent of support.
It is necessary that NaMo Govt takes a systemic view of the economy, instead of a piecemeal approach as is evident in the FinMin’s “package”. That would be true redemption for a Govt that has been dangerously slow on the uptake in dealing with India’s biggest calamity since 1947.
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